Image Source: Unsplash

TM Editors' note: This article discusses a penny stock and/or microcap. Such stocks are easily manipulated; do your own careful due diligence.

Nanaimo, Canada-based Cannabis producer Tilray, Inc. (TLRY) researches, cultivates, produces, markets, and distributes medical cannabis products. The company has executed some prominent mergers this year to strengthen its global presence. Its acquisition of Aphria is expected to help it grow significantly.

It intends to create a leading cannabis-focused consumer packaged goods (CPG) company with the largest global geographic footprint in the industry. Also, in the summer, TLRY acquired a majority of the outstanding senior secured convertible notes of MedMen Enterprises Inc. (MMNFF), a premiere American cannabis retailer.

Given that a new Congressional Republican-led marijuana legalization bill has been introduced in Congress, TLRY’s recent acquisitions should prove beneficial. Recently, Congresswoman Nancy Mace (R-SC) introduced a bill to decriminalize marijuana, with a majority of Americans now in favor of such a policy.

If the U.S market opens for business fully, TLRY should be able to expand its market reach and improve its operational capabilities. However, things are moving at a slow pace, and it could be some time before TLRY can acquire a larger market share. Also, the company’s weak bottom line is a concern.

Additionally, Barclays’ analysts have noted that the legislation is unlikely to happen under the Biden administration. Barclays also stated that Canadian cannabis companies would struggle to compete with U.S. multi-state operators.

TLRY’s stock performance over the past six months has been sluggish. Its shares have fallen substantially over the past six months. Moreover, the stock has been recently trading below its 50-day and 200-day moving averages. In addition, the stock slumped in price last week. Investors are pulling back from pot stocks due to doubts surrounding the legalization of cannabis at the Federal level. Also, the stock has a 1.52 beta, indicating high volatility.

Here is what could shape TLRY’s performance in the near-term.

Mixed Profitability

TLRY’s 24.70% gross profit margin is lower than the 55.21% industry average Also, its negative 18.72% EBIT margin is substantially lower than the industry average.

However, TLRY’s negative 13.14%, 6.26%, and 1.88% respective ROE, ROA, and ROTC compare with the negative 34.82%, 21.97%, and 18.30% industry averages.

Weak Bottom-Line

TLRY’s net revenues increased 43% year-over-year to $168.02 million in its fiscal first quarter, ended Aug. 31. However, its operating loss stood at $68.53 million, up from the same period last year. Its net loss grew 59% from its year-ago value to $34.60 million. The company’s loss per share came in at $0.08, indicating a marginal decline from the prior-year quarter. Also, its trailing-12-months EBITDA was negative $9.31 million.

POWR Ratings Reflect These Bleak Prospects

TLRY has an overall D rating which translates to Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.

The stock has a grade of D for Stability, which is consistent with its high beta. TLRY has a D grade for Momentum. This is justified because the stock has been recently trading below its 50-day and 200-day moving averages.

Of the 198 stocks in the F-rated Medical – Pharmaceuticals industry, TLRY is ranked #170. Beyond what I have stated above, one can also view TLRY’s grades for Sentiment, Growth, Value, and Quality here. View the top-rated stocks in the Medical – Pharmaceuticals industry here.

Bottom Line

TLRY is one of the top cannabis producers in Canada and is expected to grow significantly in the long-term, considering its recent strategic mergers to strengthen its global footprint. However, the company has a long way to go before it hits its goal of becoming a global leader.

Its weak bottom line could be a concern. Moreover, analysts expect its EPS to remain negative at least until next year. Also, given its high volatility, we think TLRY is better avoided for now.

How Does Tilray, Inc. Stack Up Against its Peers?

While TLRY has an overall POWR Rating of D, one might want to consider investing in the following Medical – Pharmaceuticals stocks with an A (Strong Buy) rating: Johnson & Johnson (JNJ), Merck & Co. Inc. (MRK), or GlaxoSmithKline PLC (GSK).